How Syros Pharmaceuticals Uses Nasdaq Rule 5635©(4) to Incentivize New Hires

Nasdaq Rule 5635©(4)

Syros Pharmaceuticals, a biopharmaceutical company that develops new treatments for hematologic malignancies, announced that it has granted restricted stock unit (RSU) awards to three new employees as part of their compensation package. The RSUs were granted in accordance with Nasdaq Listing Rule 5635© (4), which allows companies to issue equity awards to new hires without shareholder approval, as long as the awards are material inducements to employment.

What are RSUs and why are they important?

RSUs are a type of equity award that give the recipient the right to receive shares of the company’s common stock after a certain vesting period. Unlike stock options, which give the recipient the option to buy shares at a fixed price, RSUs do not require any payment from the recipient. RSUs are subject to taxation when they vest, based on the fair market value of the shares at that time.

RSUs are an important tool for attracting and retaining talent, especially in the biotechnology sector, where competition for skilled and experienced employees is high. RSUs align the interests of the employees with those of the shareholders, as they incentivize the employees to stay with the company and contribute to its long-term success. RSUs also reduce the dilution of existing shareholders, as they do not increase the number of shares outstanding until they vest.

How many RSUs did Syros grant and what are the terms?

In accordance with a news release, Syros gave RSU awards to two recently hired workers on July 31, 2023, totaling 16,050 shares of its common stock. As long as the workers continue to work for Syros, the RSUs will vest commencing on July31, 2024, in four equal annual payments. Each award is covered by a restricted stock unit agreement and is controlled by Syros’ 2022 Inducement Stock Incentive Plan.

In addition, Syros granted another RSU award for 9,000 shares of its common stock to another newly hired employee on June 30, 2023. The RSUs will also vest in four equal annual installments, starting from June 30, 2024, subject to the employee’s continued service with Syros. The award is governed by the same plan and agreement as the previous awards.

What is Nasdaq Listing Rule 5635© (4) and why does it matter?

Nasdaq Listing Rule 5635©(4) is a rule that allows Nasdaq-listed companies to issue equity awards to new employees without obtaining shareholder approval, as long as the awards are material inducements to employment and meet certain conditions. The rule requires that the company disclose the terms of the awards in a press release and file a Form 8-K with the Securities and Exchange Commission (SEC) within four business days of granting the awards. The rule also limits the number of shares that can be issued under this rule to no more than 5% of the total shares outstanding or issuable under existing equity plans.

The rule is beneficial for companies that need to offer competitive compensation packages to new hires, especially in fast-growing and innovative industries like biotechnology. The rule allows companies to avoid the time and cost of seeking shareholder approval, which can delay or deter hiring decisions. The rule also ensures transparency and accountability, as it requires public disclosure and SEC filing of the awards.

What does this mean for Syros and its shareholders?

The RSU grants by Syros reflect its commitment to advancing new standards of care for patients with hematologic malignancies, such as higher-risk myelodysplastic syndrome (MDS), acute myeloid leukemia (AML), and acute promyelocytic leukemia (APL). Syros is developing tamibarotene, an oral selective RARα agonist, and SY-2101, a novel oral form of arsenic trioxide, for these indications. Syros is also seeking partnerships for SY-5609, a highly selective and potent CDK7 inhibitor for solid tumors.

The RSU grants also demonstrate Syros’ confidence in its future growth prospects and its ability to attract and retain top talent in the biotechnology sector. The grants align the interests of the new employees with those of the shareholders, as they reward them for their contributions to Syros’ success. The grants also minimize the dilution of existing shareholders, as they do not increase the number of shares outstanding until they vest.

Syros’ stock price closed at $3.65 on August 4, 2023, down 5.93% from the previous day. The company has a market capitalization of $197.6 million and a 52-week range of $2.88-$8.00. Syros reported a net loss of $20.7 million and revenue of $2 million for the first quarter of 2023. Syros had $86.9 million in cash and cash equivalents as of March 31, 2023, which it expects to fund its operations into the second half of 2024.

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